Posts Tagged ‘business model’

Close your eyes, and cast your mind back to the first dotcom boom in the late 90s/early 00s. What’s your overriding memory of that whole crazy period? Or if you’re too young to really remember, what do you immediately think of when you hear dotcom bubble or dotcom boom mentioned in relation to Silicon Valley at the turn of the millennium?

I’m going to take a stab and guess that it has something to do with over-inflated valuations of ill-conceived, kooky ideas. Okay, that may be wide of the mark for some of the companies that are still plying their trade today, such as Amazon, eBay and Google. And of the many ideas that didn’t work out, not all of them were inherently bad, they were simply ahead of their time.

We’ve discussed this subject before, looking at why the original dotcom boom of a decade ago isn’t the same as today, and why we won’t see the same widespread collapse of the digital industry. In the intermittent years between the two dotcom booms, technologies, attitudes, skill levels…everything, has caught up. So even if companies such as Groupon were to fall flat on their faces tomorrow, the bubble would probably still remain intact, simply because the Internet ecosystem is far more robust – companies rise and fall as they have always done, but e-commerce is here to stay.

One of the reasons why so many companies failed before was that there was a broad lack of understanding about monetizing the Web.

As media companies try desperately to solve their revenue problems by launching paywalls and subscription iPad apps, too few are looking at how connecting with their community (or communities) can help. That’s the view of Public Radio International’s vice-president of interactive, Michael Skoler, in a piece written for Harvard University’s Nieman Foundation for Journalism. And I think he is right: engaging a community can be one of the most powerful tools that companies have in an era of real-time, distributed and hyper-social media.

As an example of what this kind of engagement can produce, Skoler describes the incredible response that PRI had when it took radio host Ira Glass on the road several years ago, with a live version of his popular show “This American Life.” But would anyone come to see what amounted to a radio show in person? Apparently yes — huge numbers of them.

They came in droves. More than 30,000 watched the first digital show at hundreds of theaters across the U.S. and Canada in the spring of 2008. The next year, 47,000 turned out. They came to be with other fans, experiencing something they all loved together. The success wasn’t so much the power of Ira, but the power of his community.

Skoler also offers several other non-media related examples of communities that have produced profitable businesses, including Angie’s List — which has grown from a site run by a single mom into a company with more than 1.5 million members in over 150 cities who pay annual fees that total about $50 million. Although Skoler doesn’t mention it, Craigslist is perhaps the most powerful example of this phenomenon: a site that started as Craig Newmark’s personal passion and is now one of the largest sites on the Internet, with revenues estimated in the $100-million-plus range.

As I was completing my thesis on “rapid innovation“, one of the frequent comment was: “and you’re lucky to work in the digital industry because you can include in your case studies Google and Apple”. As if they were two innovation champions of the same kind…

Google and Apple may seem to share similar innovation patterns from afar, but under the hood, they play totally different ball games. This way, they demonstrate their ability to build their own identity based on a genuinely personal innovation model. Let’s get more in-depth into the comparative analysis.

Leadership and Culture

Google was founded in 1998 by two brilliant engineers and strong leaders, Larry Page and Sergey Brin. To take their growth to the next stage, and in response to the well-meaning but strong pressure exerted by their shareholders, they strengthened the team in 2001 by recruiting Eric Schmidt, a manager with an international reputation, as Executive Chairman. On joining the business, Eric Schmidt discovered that 60% of searches were run from areas outside of the USA and set up sales teams to develop operations in Europe. The management style is characterized by the care dedicated to recruitment: Larry Page has always carefully considered each and every application from potential candidates and it is not uncommon for up to 10 recruitment interviews to be held. However, this does not mean that there is no scope for thoughtful open-mindedness: to boost the performance of its network of servers, Google’s 18th employee was a neurosurgeon who had qualified at Harvard and the Yale School of Medicine. Finally, one should note the sense of fun “which is taken very seriously” at Google; the Googleplex site is playfully decorated, with toys, benefits and services available on the premises, while the delicious, cosmopolitan and healthy cuisine symbolizes the sense of enjoyment that presides at Google.

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We love Instagram here at TNW because it’s one of the most filter-fun, photo sharing apps for the iPhone. When Instagram launched it attracted numerous early adopters and now has over 4 million users. But this could just be the beginning for Instagram as brands and businesses are now jumping on board.

Instagram hasn’t announced how it’s going to monetize the site yet (social networks usually wait about 5 years to address that problem these days) but the fact that brands are seeing value in the service is certainly a good sign. The highly visual nature of the site means that it is relevant to a lot of brands in different ways and there are already some great, creative ways in which photos are being shared. You can expect plenty more brands to start joining Instagram over the coming months and it really is good to see some of the bigger ones already there.

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Harry van Vliet, Erik Hekman and I have started a summer writing project with the work title ‘The value of social media’. Eventually, this writing will become a cahier, say, a booklet. We work in a wiki. We write in Dutch. The text will be translated in English once we are done.

One of the topics I discuss is business models. In core of business is trade: You have something to sell, I want it, we trade it (when for money, we call this transaction, when for something, barter). You may also refer to this system as needs relationship. Today we also observe a new form of needs relationship, that of Consumer-to-business (C2B). One of the most common definitions of C2B is that this is an e-commerce business model in which consumers offer products and/or services to companies that pay for it. CB is therefore a 180˚ shift of the traditional (B2C) business models. We also call this the inverted business model. Inverted business models emerge under the influence of two main developments:
1- The rise of the current web (web2.0) with keywords such as interaction, participation, transparency and community building has an impact on two-way communication and value web creation (in contrast to the traditional value chain),
2- The downfall of costs of technology. Individuals now have access to technology and applications that used to be restricted to companies due to the costs.
Due to these developments, people are empowered to create their own digital environment. Consequently, (some) people will use that empowerment to also create a certain commercial environment.

Another way to look at C2B can be found in research, conducted by Chen, Leen and Chuang*: “Compared to the three frequently mentioned models: B2B, B2C, and C2C, which are now very popular, the progress of the other one (i.e., C2B) is far left behind; it is seldom seen on the Internet. A possible reason for this situation is the high transaction cost. It takes effort to unify a group of buyers’ common needs and preferences and to interact between the buyer’s party and the potential venders in order to complete a transaction. Moreover, it is not clear how to do it; there is little research into this problem”.
The authors further state that C2B is mainly a matter of collective buying processes, e.g. participating in organized leisure travel; in this case, the consumer will modify his personal whishes because of the lower price that has been negotiated collectively with the offerer.

In his thesis, Alexander Osterwalder states**: “A business model is a conceptual tool that contains a set of elements and their relationships and allows expressing a company’s logic of earning money. It is a description of the value a company offers to one or several segments of customers and the architecture of the firm and its network of partners for creating, marketing and delivering this value and relationship capital, in order to generate profitable and sustainable revenue streams”.
Strangely enough, it is hard to find definition of C2B that are not company-centered but more consumer-centered. Currently I am conducting a literature study of, what I would like to call, ‘real’ C2B: consumers proposing to businesses, specifically in social media. We’ll see what the values are

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Future Case is an aggregation space about mobile life, business modeling, marketing and branding. The content is chosen from a number of sites that are serious on their matter. Authors can contribute. Please contact Kees.

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